Book #2 -- Microeconomics

Exciting to have Book #2 almost ready!

Videos for the Micro class .....

For more information on the following economic concepts, click on the links below.

  Scarcity, Choice, Rational Self-Interest, etc.

  Macroeconomics vs. Microeconomics 

  Positive vs. Normative Economics

  Graphs

  Individual PPC

  Opportunity Cost
Just a short note about the definition of "full cost" shown in the Opportunity Cost video.  It should read:
Opportunity Cost = Direct (or Explicit) Cost + Indirect (or Implicit) Cost

  Law of Demand 

  Demand vs. Quantity Demanded

  Law of Supply

  Market Equilibrium

  Price Floors & Price Ceilings

  Price Elasticity of Demand      

  Characteristics that Determine Elasticity

  Diminishing Marginal Utility

  Indifference Curve Analysis

  Producer Theory
   
  Short Run vs. Long Run

  Accounting Cost vs. Economic Cost

  Fixed and Variable Costs

  Cost Curves

  Do we really need all those diagrams?

To my current econ students .....

Remember to bring your answer to the problem I gave in class on Thursday ---

Update the CPI values (all three years) if the base year was 2011 instead of 2010.  Use the market basket totals ($7.50, $5.25, $3.75) and the CPI formulas.  Be sure to multiply by 100.

                                                   

Coming Soon ...

... more mini-lectures on Microeconomics!  Check back for updates and more info and hopefully, the semester is going well so far.

Economies of Scale

Suppose L = 1 and K = 2 and the prices of each input are $10 so that TC = $30.  The Q produced is equal to 5 so that AC = TC/Q = $6.  If both inputs double (i.e., L = 2 and K = 4) and Q triples so that Q = 15, will AC rise, fall, or stay the same?  Is this an example of increasing, decreasing, or constant returns to scale?  Is this an example of a short run or long run concept, and why?

Marketing #5

Economic Rent

Economic rent is the difference in the amount of money that an individual would be willing to work for, and the amount that they are actually paid. Consider a rock star, or a sports figure who earns, say, a million dollars each year, but would actually be willing to work for $100,000/year. Economic rent, then, equals $900,000 which is a payment provided to the individual (or any type of input) due to their "uniqueness". Another way of thinking about this concept is that an increase in wages will not increase the quantity of labor supplied because the equilibrium wage (which ultimately determines economic rent) is primarily a function of DEMAND for an individual input since supply is relatively fixed.

Marketing #4

Backward-bending Labor Supply

An individual's labor supply curve will have an upward-sloping range and then eventually will start to bend backward.

Consider this question:  When you get a pay raise, does the raise cause you to work more hours, or less hours? (With respect to this question, assume that you have the ability to choose how many hours you'd like to work.)

[Note:  Refer to the graph below.]

The labor supply curve begins at point A with what's referred to as a "reservation wage" (i.e., the lowest wage you would be willing to give up your leisure time for).  In the upward-sloping range, as the wage increases, the quantity of labor hours supplied also increases.  (Digression:  W and L are positively related here because the substitution effect between labor and leisure exceeds the income effect of the wage increase.)

However, at a particular wage (and this wage is different for different individuals), the income effect will dominate the substitution effect, and as the wage increases, the quantity of labor supplied will start to decrease.  W and L are inversely related in this region because when the wage rises, the individual feels "richer", and chooses to work less, not more.